Essay: Swiss Franc / Switzerland
Tainted by its association with Nazi Germany’s gold looters, perhaps, but the Swiss franc remains one of the world’s most popular investor currencies. And, rather like a reliable relative, it’s proved remarkably steady during recent global economic woes.
In the film adaptation of The Third Man, conman Harry Lime, played by Orson Welles, famously sneers that while Italy’s perpetual tumults gestated the Renaissance, Switzerland’s centuries of stolid stability bequeathed the world little except the cuckoo clock. A smart response would have been to enquire in which of the two countries Lime would rather bank his salary.
Switzerland’s franc, in keeping with the characteristics stereotypically ascribed to its country, has never put itself ostentatiously about. The franc has none of the cultural cachet of the US dollar and little of the hubris of the euro (the franc is legal tender only in Switzerland, the tiny principality of Liechtenstein and the Italian enclave of Campione d’Italia, and widely used in the German enclave of Büsingen).
The franc is, by any measure, a small currency issued by a nation of fewer than eight million people. But it’s also the world’s fifth-favourite reserve currency, behind the dollar, sterling, the euro and the yen – and an enduringly popular investors’ haven in times of trouble.
Between the collapse of Lehmann Brothers on 15 September 2008 and the present day, the Swiss franc has soared above the confusion besetting the world’s financial markets, climbing 19 per cent against the dollar, 23 per cent against the euro and 34 per cent against sterling. And it seems likely, for tragic reasons, that it will recover the single-digit shortfall it suffered against the yen during that period. “In financial markets,” says Serge Ledermann, head of asset management at Geneva-based Banque Heritage, “there are times when certain assets are favourites, but the chief characteristic of the franc is that its value is long-lasting.”
The modern Swiss franc has its origins in the provisions of the 1848 Swiss constitution, which reserved the sole right of manufacturing currency to the federal government. Before that, Switzerland’s monetary system was an ungovernable riot of currencies issued by individual Swiss cantons and private banks, plus inflows of foreign money. The Federal Coinage Act of 1850 preceded the issue of the first coins in 1851. These featured the Swiss totem Helvetia on denominations of half a franc and up and the Swiss cross on the smaller change – motifs that still dominate Swiss coins to this day.
Another constant is the practice of only inscribing the coins in Latin, to avoid conflict between Switzerland’s four official languages: German, French, Italian and Romansch. The currency’s trade name, CHF, is an abbreviation of the Latin phrase Confoederatio Helvetica Franc.
Switzerland’s mint does, however, regularly let its hair down with commemorative coins. These have included tributes to physicist Albert Einstein, Red Cross founder Henry Dunant, designer Le Corbusier, balloonist Auguste Piccard and Second World War military commander Henri Guisan, as well as various significant historical events. This year’s special issues include a CHF20 coin acknowledging the 100th anniversary of the birth of author Max Frisch and a CHF10 coin celebrating the Bern onion market. Banknote production was left to the cantons until the establishment, in 1907, of the Swiss National Bank; eight series of notes have followed since (in denominations of 10, 20, 50, 100, 200, 500 and 1,000).
All countries which have a currency of their own deploy the physical manifestation of it, to some extent, as a nation- binding agent and advertisement of their virtues. And Switzerland is no exception – the current notes, designed by the late Jörg Zintzmeyer, include tributes to historian Jacob Burckhardt, artist Alberto Giacometti and composer Arthur Honegger. The notes also reveal something of Switzerland’s prosperity – its CHF1,000 note buys 10 of America’s biggest bill, the $100 note, plus some change – and something of the country’s fractured heritage: that same CHF1,000 note declares itself as Tausend Franken, Milli Francs, Mille Francs and Mille Franchi.
“It is becoming more important as an expression of national identity,” says Patrick Halbeisen, head of the Swiss National Bank’s archive. “When the modern Swiss state was founded in 1848, it wasn’t that important. And then Switzerland became part of the Latin Monetary Union until the 1920s. In the post-war period, the franc became more important in this regard, especially as we did not join the euro.”
The Swiss National Bank is due to issue a new series of banknotes in late 2012. The design was selected by a 2005 competition and the winner was Zürich designer Manuel Krebs. But the notes issued will actually be designed by the runner-up, Manuela Pfrunder. Pfrunder claims to be forbidden from discussing the project, while Halbeisen insists that the switch was largely for technical reasons.
“There has to be a lot of secrecy about it, because you don’t want the forgers to catch up,” says Halbeisen. “The reason that the new issue has been delayed is the complexity of the security measures.” These must be indeed formidable. The current banknotes have no less than 14 individual security features – and these, of course, are just the ones the Swiss National Bank is willing to admit to.
The Swiss franc’s long-held status as one of the few currencies everyone can agree on has led, in some circumstances, to a tarnishing of its reputation. A 1998 report by the US State Department stated that Nazi Germany transferred fortunes in looted gold into Swiss francs – the only convertible currency available to the Axis powers – enabling the purchase of war materiel from Spain, Turkey, Portugal and Sweden. In 2002, a Swiss inquiry, headed by historian Jean-François Bergier, published a report that was essentially a rueful meditation upon the blurriness of the line between pragmatism and collaboration.
For the forseeable future, however, the Swiss franc seems likely to remain a popular shelter on a rainy day. “There is a multitude of reasons for that,” says Otto Waser, chief investment officer at Zürich-based asset management and equity research firm R&A Group. “Traditionally, the franc is a bit of a substitute for gold. There has always been a good economy here – low inflation, current account surplus – and stable politics.”
Waser notes that flights to the franc tend not to be panicked stampedes – he says that there has been an almost surprising lack of stockpiling in response to 2011’s political crises in the Middle East and physical upheavals in Japan. People seem to buy the franc much in the way it has always sold itself – in a considered and orderly fashion. “Maybe Switzerland is a dull country,” says Banque Heritage’s Ledermann. “But when times are rough, it’s reliable.”